Learning to live green and live together

Archive for May, 2009

There’s a lot of good advice out there about investing in the stock market. Reduce taxes by investing through an IRA or 401(k). Don’t put all your money into the stock market. Invest for the long term. Invest in what you know. Avoid fees as much as possible. Buy low-cost index funds.

But first, why invest in the stock market at all? It’s riskier than CDs, which are insured by the US government, and bonds, which get paid first in case of bankruptcy. If you invest in a company and it goes bankrupt (or gets nationalized), you get nothing. If you buy a company’s bonds and it goes bankrupt, you might only get pennies on the dollar, but you’ll get something.

The fiscal reason is that the stock market has much higher historical returns than CDs or bonds. If you diversify (perhaps by buying index funds), you can mitigate your risk and get double the returns of just a CD. Over time, you can even make money in a volatile market.

In addition to the potential monetary upside, buying stock gives you an in at the company. You get in-depth information about the company, you can help elect board members, and you can address other shareholders about any concerns that you have. Even just holding onto a stock encourages long term thinking.

There are three main strategies for buying stocks, each with different benefits and drawbacks. The most prevalent for beginning investors is buying index funds. Index funds are collections of stocks tracking an “index” like the Dow Jones Industrial Average or the S&P 500. Since they don’t require much management, fees are very low (generally less than 0.5% per year). They also offer instant diversification, which makes them a good choice if you think the stock market will improve but don’t want to take risks with individual companies. Unfortunately, index funds are only as good as the underlying indices, generally including unsustainable or immoral companies like Exxon and Philip Morris (insert your own bias here if you think those two examples are okay). Most are also “market cap-adjusted,” which means that they own more stock the larger a company is, reducing diversification. Owning an index fund also means that you don’t get some of the benefits of stock ownership like voting rights and easy access to quarterly statements.

More sustainable are managed funds like the New Alternatives Fund (Maggie owns this, but this isn’t a recommendation, just an example). These funds pick a narrower field, like alternative energy, and trade actively in an attempt to beat the market. This makes it more likely that the underlying companies are good, sustainable ones but reduces diversification, making the investment riskier. Managed funds also have higher expense ratios (usually over 1%) so you have to earn more just to break even. You also have the same insulative problem as index funds where you are less active in the underlying companies.

Finally, there’s buying stocks individually. A lot of very smart people don’t think that most people should buy individual stocks. They’re probably right. If you don’t have a high tolerance for risk, a willingness to hold onto stocks despite short-term problems, and the time and inclination to spend some significant time researching companies, individual stocks aren’t for you. On the other hand, individual stocks are the cheapest way to invest in the market. Instead of paying a set percentage every year, you pay a flat fee up front (usually around $13). For a $1,000 investment, that’s only 1.3%, or about what you’d pay to keep an index fund for three years. For a long-term investor, that’s a deal! In addition, the increased risk brings with it an increased potential. Even in the poor market of the past year, there are stocks that have doubled in value.

More importantly, holding stock in an individual company gives you a piece of ownership. You have an obligation to pay attention to your company and you have a voice should it do anything inappropriate. There’s even a sense of satisfaction from being a small part of a company doing great things.

If you do decide to invest in individual stocks, make sure that you invest in companies that you understand. Without understanding, you won’t be able to reasonably evaluate the company, which makes it more likely that they’ll successfully hide any wrongdoing. You should also make sure to compare your picks against an appropriate yardstick. It’s great if your stock goes up 5%, but if the market went up 10% over that same period, you probably need to reevaluate your strategy.

Before buying a single share, start thinking about companies that you respect and admire as well as companies that you think just need a little nudge to approach greatness. Watch these companies for a while and find out all you can about them. It’s easy to find their financials online, which will help you decide if they’re in it for the long haul or if they’re having real trouble.

Even if you want to put your retirement savings in super-safe CDs, I recommend going through the process of picking and buying a stock. It gives real insight into our economic system, helps you understand a lot of hoopla that would otherwise be a mystery, and will help you decide if you have the temperament for further investment.

I love shopping the bulk bins at our local co-op grocery but I hate using the plastic bags they provide. Sometimes I’ll take in jars or tupperware containers to fill up but it gets a little bulky and it can be challenging to find appropriate sized containers for things like flour or rice that I like to stock up on. So I was very excited when my best friend gave me some reusable bulk food bags for Christmas, although it took me awhile to remember to actually *take* them with me to the grocery store.

Pretty cute, eh? They’re sold on etsy.com through the seller kootsac based out of the Kootenays in British Columbia. (I had to look it up but it turns out that the Kootenays are a section of the Rocky Mountains that comprises the watershed of the Kootenay River, named after an indigenous people also known as the Ktunaxa.) The sacks I have are made out of nylon and are machine washable, which is awesome. Kootsac also sells sacks made out of natural silk for about the same price. Nylon is not the most natural substance in the world but I think it makes a great plastic substitute. The only drawback I’ve noticed so far is that these sacks breathe a little more than plastic does so my granola is getting a little less crisp than I like it. However, I probably ought to put it in a glass container anyway so I can then reuse the bag to buy more bulk stuff.

I love finding cool solutions like these to every day eco-problems, although I sometimes worry I’ll focus too much on buying cool eco-products instead of just living simply. But I think these are a worthwhile addition to my home kitchen and hope to see some more great suggestions at ecoetsy. Ooh, I like these flannel sandwich holders that can be used to replace ziplock baggies and these snazzy moonpads and perhaps I need a wallet made out of lawn chair webbing…

As I write this, it’s thundering ominously outside. It’s been raining all day, ranging from a drizzle to a downpour. Saffron hasn’t gotten as much exercise as she’s used to, so she’s been bouncing off the walls. Right now, though, she’s taking a nap, which makes her a welcome warmth next to me. Since the markets are now closed, I check my stocks. They’re down 5% today, which puts me down 26% overall since I started my retirement investments. Self-doubt grips me. What am I doing telling people how to invest sustainably?

It’s been a while since I’ve posted. Partly, I’ve been really busy. In addition to working at my company, I taught two classes at IU this semester. It was (mostly) fun and gratifying to pass on some of my hard-earned knowledge, but prepping for classes and grading took way more time than I expected, especially towards the end of the semester.

Another part of it is that I’ve had a mental block on writing the last of my posts on investing sustainably. Talking about CDs or bonds is one thing. People either know about them already, in which case I’m doing no harm, or they don’t know much, in which case I’m helping introduce a subject. Stocks are a little different, though. It’s more complicated and more people know the basics, which makes me worried that I’ll give just enough advice to be dangerous. That’s doubly troubling to me given the recent market crash, which underscores the perils of investing in the stock market, especially as you near retirement age.

I’ll post more specific stock advice on Friday, but I want to use this post as my apology (in the philosophical sense). Who am I to give stock advice?

First off, let’s talk about what I’m not: a professional. I do a lot of reading and research, but stock market analysis is just a hobby. I also haven’t been doing it all that long. I first started putting retirement money aside just two years ago (yep, just in time to buy high). In that time, I’ve heard a lot of conflicting advice. Index funds, active funds, hot stock tips, commodities, gold. It seems like everyone has a favorite strategy but they rarely talk about their assumptions and biases, which makes it difficult to figure out if the advice is applicable to your situation.

I do all of my investing through a Roth IRA. At my income level (and most people’s), this allows you to put $5,000 into a special account (in my case through Charles Schwab). I’ve already paid taxes on that money, so I can buy and sell within my Roth without triggering any capital gains taxes. I’ll also be able to remove money tax free when I hit retirement age. A traditional IRA is similar except that you pay taxes at the end instead of the beginning. You still don’t have to pay capital gains taxes as you buy and sell within the IRA, which is good.

Following most people’s advice for beginners, I put my money into two different index funds, both tied to the S&P 500 (one with some bond exposure, not that I really understood that at the time). Since then, I’ve become disillusioned with index funds so I now buy more individual stocks. Every month, I set aside some money and, when I feel like I have enough that the transaction fee won’t be too high, I buy another stock to increase my asset diversity. At the moment, I own three index funds and five individual stocks across a variety of industries and in a variety of sizes.

I mentioned at the beginning of this post that my portfolio is down 26% over the two years that I’ve had it. That sounds bad (and is certainly a little depressing), but the Dow Jones Industrial Average is down 34% over the same period and the S&P 500 is down even more. That means that I’ve done about 8-10 percentage points better than the market as a whole, which is pretty good.

At this point, it’s almost certainly as much about luck as it is about any particular insight. The past year has been remarkable for stock buyers, with some incredible volatility. I tend to think that many stocks are currently underpriced but that it will take a long time for the market as a whole to recover. On the other hand, I think that some sectors will grow very quickly, which makes this a good time to buy in. Since your assumptions might be different (and your values almost certainly are), use my advice as a starting point rather than the be-all and end-all.

While I’ve written this, the rain has stopped. This seems like a good opportunity to stop reading (and writing) about underpriced companies and take the dog for a walk. Don’t let market problems keep you from enjoying the good things in life because they’re more important anyway!

When life gets stressful, certain things start to become undone around our house. The blog is certainly one example but another prime example is dishes. Somewhere in the dim past I offered to be the official dishwasher if Will would take responsibility for putting dishes away, an act of self-sacrifice that I regret every time I look at our kitchen counter piled with dirty plates and pots. Needless to say, the fact that we’ve both been working long hours and been pulled in lots of different directions has not helped the situation any.

So we came to the conclusion that we need a dishwasher. Of the machine sort. It seems like an anti-green thing to do but apparently there are some dishwashers now that use less water than most handwashers do (and no, I’m not comparing them to someone who washes the dishes by letting the water run constantly). However, our kitchen was not designed for a dishwasher so we’d have to do some finagling to take out a cabinet and add in an electrical line and probably pull off our countertop and replace it again if we want a traditional built-in dishwasher.

After I did a 30-second assessment and decided the project is well beyond my handywoman skills, I began lobbying for a portable dishwasher. They do the same thing but have to be wheeled into place and attached to the kitchen faucet every time they’re run. It doesn’t sound like too much of a challenge to me but Will went off in search of an even better alternative and discovered the countertop dishwasher. It only fits about half as many dishes as a portable dishwasher but it uses very little water, can be attached to the garbage disposal (rather than the faucet), and can even be installed under the sink to save countertop space.

The challenge? Neither of us have ever seen one in person and no store in Bloomington appears to sell them. We’re both reluctant to plunk down $200 and wait for the UPS delivery but on the other hand, we’re running out of clean dishes.

Have any of you seen or used a countertop dishwasher? What do you suggest?